Nigeria | NGX

Airtel Africa’s H1 2024 numbers were buoyed largely by growth in mobile money revenue (up 25.5% y/y to US$416m) and data revenue (+5.9% y/y to US$915m) amidst a decline in voice revenue (-4.6% to US$1.16m). However, the company’s bottom line performance was significantly impacted by FX losses, which resulted in a spike in the company’s Net Finance Cost (+144.1% y/y to US$873m), causing Profit before Tax to decline by 97.7% y/y to US$12m compared with US$330m in H1 2022.

The Afrinvest weekly sentiment advanced to 2.3x (previously at 2.0x). This week, we expect bargain hunting opportunities to boost market performance.

The bourse ended the week on a positive note as the NGX-ASI rose 4.6% w/w to close at 70,196.77 points. Consequently, YTD return improved to 37.0% and market capitalisation advanced ₦1.7bn to ₦38.6tn.

Across our coverage sectors, performance was bullish as 5 indices gained, while the Oil & Gas index closed flat. Leading the gainers, the AFR-ICT index advanced 11.7% w/w. Trailing, the Insurance and Banking indices advanced 8.0% and 2.7% w/w respectively. Similarly, Industrial and Consumer Goods rose 0.7% and 0.5% w/w respectively.

Top gainers for the week were MBENEFIT (+29.3%), JAPAULGOLD (+28.3%), and AIRTELAFRI (+27.9%), while RTBRISCOE (-14.0%), BETAGLAS (-10.5%), and MEYER (-9.9%) led the losers.

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October was a gory halloween for the global equities market as investors were mostly risk-off due to the higher yield environment, expectation of Fed rate hike, and the emergence of fresh geopolitical tension (Israel-Hamas war). As such, the MSCI World Index dipped 3.0% m/m. In the US, Fed Chair, Jerome Powell signaled that the policy rates could be held steady at its November 1st policy meeting, with warnings of hawkish decisions if inflation remains hot...

MTN Nigeria’s 9M 2023 Revenue growth was driven largely by double-digit growth in voice ((+10.6% y/y to N834bn) and data revenue ((+36.4% y/y to N749.53bn), amidst inflationary growth in Operating Expenses (+22.2% y/y to N417.42bn). A 174.41% y/y increase in Net Finance Cost to N375.96bn contributed significantly to the decline in Pre-tax Profit, which was down 42% y/y to N232.47bn in 9M 2023 from N400.67bn in 9M 2022.

Dangote Cement’s operations were affected negatively by the election uncertainty and cash unavailability which impacted business operations in Q1 2023. The company also noted that the significant FX devaluation in Q2 2023 also hampered sales volumes. Consequently, the group sales volume declined 2.3% y/y to 20.29m MT in 9M 2023. However, the combination of increases in prices and strong volume growth from its Pan African operations came to the rescue, resulting in Revenue growth of 28.7% y/y in 9M 2023. We believe constrained purchasing power and low CAPEX expenditure by the government continue to affect sales volumes across the whole industry.

United Bank of Africa Plc (UBA) will likely grow gross earnings by 116.5% to c.N1.7 trillion by FY'23 end (vs a five-year average of N587.4 billion), aided by a projected surge in non-interest revenue to N698.4 billion (FY'22: N213.1 billion) and a 74.0% accretion in interest income. The expected surge in non-interest revenue should be inspired by the rise in net fair value gains on derivatives recorded in the second quarter of the year - a positive offshoot of the material naira devaluation and associated derivative revaluation, with the bank mainly net long in dollar assets. The further deterioration in the I&E window in the ongoing quarter (c.815.32/$ as of the close of 31st October 2023) suggests that there could be scope for more currency-inspired accretion. Similarly, interest income should be supported by the upward movements in fixed-income yields inspired by material re-ratings at the NTB and OMO markets, the removal of the cap on the SDF, and the overall hawkish disposition of the CBN. The impact of the above drivers will likely remain evident in FY'24.

Elsewhere, the bank's huge stock of cheap funding (low-cost funding mix of 93.8% as at 9M'23) and aggressive expansion of retail presence should lead to a relatively subdued increase in interest expense (67.6% YoY vs our projected 74.0% increase in interest income) over the ongoing financial year. Hence, we see legroom for a 1.1ppts increase in NIM to 6.5% in FY'23. This NIM should support a total operating income growth of 126.1% over the full-year period (vs 145.6% YoY in 9M'23). Given this, passthrough from currency-induced gains, and our expectation for a more measured increase in operating expense (+37.8% YoY vs the employee wages and regulatory charges induced 41.2% increase in 9M'23), we see latitude for an improvement in the cost-to-income ratio to c.36.0% in FY'23 (vs 59.1% in FY'22).

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